January 22, 2009 / 11:31 AM / 9 years ago

UPDATE 4-Potash Corp profit surges, stock up despite outlook

*Q4 EPS $2.56 vs $1.16

*Sees 2009 earnings of $10 to $12 a share

*Sees first-quarter earnings of 70 cents to $1 a share

*China price negotiations not seen until Q2

*Shares up 6.7 percent (Adds China contract details. Updates stock price. In U.S. dollars)

By Scott Anderson

TORONTO, Jan 22 (Reuters) - Potash Corp of Saskatchewan (POT.TO) reported a fourth-quarter profit that more than doubled on Thursday and its shares surged even though it issued weaker than expected forecasts for 2009.

Potash, the world’s biggest fertilizer company, said it sees 2009 potash shipments flat with 2008 or slightly lower even though it expects increased global demand in the second quarter.

The Canadian company forecast 2009 earnings of $10 to $12 a share, which is lower than the $12.72 a share, before items, expected by analysts surveyed by Reuters Estimates.

Potash forecast first-quarter earnings of 70 cents to $1 per share, also well below the consensus analyst outlook of $1.81 a share before items.

It said capital expenditures will be about $1.8 billion in 2009, compared with an estimated $1.2 billion for 2008.

Potash shares gained 6.7 percent to C$92.40 on the Toronto Stock Exchange on Thursday after falling 2 percent at the open.

“With 1Q 09 projected (EPS) at just 70 cents to $1.00, a substantial recovery in fertilizer demand (potash in particular) in 2Q 09 is likely necessary in order for (full year) guidance to be achievable,” Morgan Stanley analyst Vincent Andrews, said in a note.

Morningstar analyst Ben Johnson said the company’s outlook indicates confidence that high prices for potash, a key fertilizer ingredient, will hold through the course of the 2009 planting season.

“If you back into what they are expecting in terms of unit volumes and gross margins within the potash segment, it would seem to imply that they fully expect to hold the line on (potash) pricing in 2009,” Johnson told Reuters.

Fertilizer prices soared in early 2008 on surging demand, tight inventories and record grain prices. But the global credit crunch and deepening economic downturn have weighed on the agricultural sector, and grain and nutrient prices have fallen as farmers have deferred fertilizer application.

However, the company anticipates an upswing in demand by the second quarter as farmers resume fertilizer applications.

“We expect to see a return to increased planting and proper fertilization in the near future, although the exact timeline is difficult to predict,” Potash President and Chief Executive Bill Doyle said on a conference call.

Until then, the company said it plans to curtail all production of finished phosphates at its White Springs facility in Florida through the first half of 2009, and will run its Aurora operations in North Carolina at reduced rates through the first quarter.

This amounts to more than 2 million tonnes of potash, Morgan Stanley’s Andrews said.

Handcuffing the company’s 2009 forecast is the lack of a contract to sell potash to China, a key bulk customer.

The company does not expect price negotiations with China to conclude until at least April, despite the company’s desire to complete the talks by the end of March.

However, it expects negotiations to result in China paying higher prices, Doyle said on a conference call.

The average realized potash price in the fourth quarter was $625 a tonne, with about 74 percent of the sales volumes related to offshore markets -- mainly the lower-priced Chinese and Indian markets.

RECORD RESULTS

For the quarter, the company said it earned $788 million, or $2.56 a share, up from $376.8 million, or $1.16 a share, a year earlier.

Potash said earnings benefited from a strong year-over-year increase in potash prices.

The results were also helped by a tax rate of about 8 percent, well below analysts’ expectations of a tax rate around 27 percent.

Sales for the quarter were $1.87 billion, up from $1.43 billion for the same period last year.

$1=$1.26 Canadian Reporting by Scott Anderson and Euan Rocha; editing by Peter Galloway

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